Political Barriers for Game Console Makers in China

A game console bonanza in China? Not yet so far.

The irony for video game console makers in China is that while some components are made there, the likes of Microsoft, Nintendo and Sony have not been able to sell console makers in the mainland--at least until January of 2014 when the ban on selling consoles was lifted. Starting in 2000, there had been a ban due to supposed concerns about video game consoles engendering moral decay from pervasive violence. No Witcher 3 for you. buddy. However, console makers are not home-free yet by a long shot: There being no such thing as a free lunch, they have to establish operations in China's newfangled Shanghai SEZ and obtain local partners besides if they wish to sell these things in the PRC. From the Nikkei Asian Review:

The ban, which was put in place in 2000, was lifted in January for companies that build operational bases in the China (Shanghai) Pilot Free Trade Zone. Foreign console makers also have to partner with Chinese companies. To meet this requirement, Sony in May agreed to set up joint ventures with Shanghai Oriental Pearl Culture Development, a government-affiliated media company.

What are the barriers to entry? Let us count the ways. First off, note that consoles are not totally unavailable since there has been an active grey market for these devices:

China’s ban didn’t totally eliminate consoles there — a grey market of smuggled and home-grown consoles has long existed there. But analysts say the rule caused China’s gaming market to be dominated by PC and mobile games. That means Sony and Microsoft now have to convince Chinese gamers they should buy a console, too.

Why, then, should Chinese consumers buy consoles when there are PC and smart device games aplenty? Note, too, that the censors will have a crack at approving titles as well--not something they necessarily do with PC or smartphone games. Speaking of which, PRC regulators are (surprise!) much more willing to cut local developers slack, hence the drive to obtain local partners' existing content which can be ported immediately without passing through the electro-nannies again:

But while China is letting foreign consoles through the front door, whether or not they can bring along Call of Duty or Titanfall is another question. Each game sold in the country has to win the hard-to-earn approval of China’s Ministry of Culture, which prohibits everything from blood to touchy political topics...

The key for Sony and Microsoft, analysts say, is for them to build partnerships with Chinese game makers, who enjoy pre-existing relationships with regulators and whose games have already passed the lengthy approval process. For now, Sony and Microsoft can entice Chinese developers to port their pre-approved games to the Xbox and PlayStation. If consoles take off with Chinese gamers, local developers are likely to start making dedicated games for them.

With an entrenched based on PC and smartphone users, the Johnny-come-lately console makers don't have it easy. For instance, Microsoft Xbox One sales have been limited thus far:

Microsoft has not done nearly as well. In China, only around 100,000 Xbox Ones have been sold in the three months or so that the console has been in stores. The low number comes despite spirited promotions. Working with the Lenovo Group and Chinese consumer electronics retailers, Microsoft has set up 4,000 locations in 37 cities where consumers can try their hand at console gaming.

Microsoft is also promoting the Xbox as an educational tool. In late November, it launched an online English language course for 2- through 8-year-olds. Yusuf Mehdi, a Microsoft corporate vice president, stresses the Xbox's ability to play movies and music, and to be used for educational and health care purposes.

While it's great to portray game consoles as multi-purpose devices, don't smartphones, tables and PCs do those things better already? Like I said, it's going to be an uphill battle given commercial challenges on top of sundry regulatory ones imposed by the Chinese government.